ST. LOUIS /PRNewswire/ — Peabody (NYSE: BTU) today announced its first quarter 2018 operating results, including revenues of $1.46 billion, income from continuing operations, net of income taxes of $208.3 million, net income attributable to common stockholders of $106.6 million, diluted earnings per share from continuing operations of $0.83 and Adjusted EBITDA1 of $363.9 million.
“Peabody increased volumes, revenues and Adjusted EBITDA over 2017 levels and generated record free cash flow – in addition, today we are announcing the expansion of our share repurchase program to $1.0 billion after accelerating our existing $500 million buyback program,” said Peabody President and Chief Executive Officer Glenn Kellow. “Our results reflect multiple achievements despite not operating at our full potential, as we generated significant cash, sold non-core assets, released cash collateral, simplified the capital structure, initiated a quarterly dividend and accelerated buyback activities.”
First Quarter 2018 Results
Revenues for the first quarter rose 10 percent over the prior year to $1.46 billion driven by improved seaborne coal pricing and increased metallurgical coal volumes. First quarter income from continuing operations, net of income taxes, totaled $208.3 million, reflecting $169.6 million of depreciation, depletion and amortization and $36.3 million of interest expense. Net income attributable to common stockholders totaled $106.6 million for the quarter and included a non-cash dividend charge of $102.5 million related to the conversion of preferred shares during the quarter. All remaining preferred shares converted to common stock as of Jan. 31, 2018.
First quarter Adjusted EBITDA increased 7 percent over the prior year to $363.9 million as strong seaborne pricing more than offset the impact of scheduled longwall moves in both Australia and the U.S.; weather effects and temporary geological conditions in Australia; and weaker U.S. pricing.
Australian Adjusted EBITDA increased 23 percent over the prior year to $228.0 million as 36 percent higher metallurgical volumes and sturdy seaborne pricing offset temporary weather and geological conditions. Australian sales volumes totaled 6.8 million tons, including 3.0 million tons of metallurgical coal sold at an average price of $153.04 per ton and 2.1 million tons of export thermal coal sold at an average price of $78.18 per ton, with the remainder delivered under a long-term domestic contract.
Australian thermal realized pricing increased 10 percent to $53.42 per ton in the first quarter, supported by strong seaborne coal fundamentals despite a larger mix of lower-priced domestic Australian sales. Adjusted EBITDA margins totaled 31 percent for the Australian thermal segment as robust seaborne pricing mitigated the impacts of 17 percent lower volumes and higher costs associated with a scheduled longwall move at the Wambo Mine; impacts from weather; and temporary lack of coal availability due to geology at the Wilpinjong Mine.
Australian metallurgical revenues increased 42 percent to $466.2 million in the first quarter on strong sales volumes and higher seaborne pricing relative to the prior year. Australian metallurgical costs per ton declined 2 percent from the prior year. However, costs were elevated during the quarter largely due to the completion of a longwall move at the Metropolitan Mine as well as temporary weather-related challenges. Despite these challenges, the metallurgical segment led the company in Adjusted EBITDA margins and contributions, earning 36 percent Adjusted EBITDA margins and contributing Adjusted EBITDA of $166.4 million in the first quarter.
First quarter U.S. Adjusted EBITDA totaled $137.7 million compared to $191.7 million in the prior year. Lower U.S. margins were driven by a decline in realized pricing as well as increased costs largely due to a longwall move; scheduled repairs and maintenance across the operations; wet weather in the Midwest; and sequencing of overburden removal in the PRB. In addition, first quarter 2017 Western segment results benefited from a $13 millioncontractual settlement with a customer, compared to approximately $3 million in the first quarter of 2018.
Resource Management Adjusted EBITDA increased $17.9 million from the prior year to $20.8 million, primarily due to a $20.6 million gain from the sale of surface lands in Queensland.
During the first quarter, Peabody generated positive operating cash flow of $579.7 million, including the release of $254.1 million of collateral requirements and cash tax refunds of $61.2 million. Free cash flow totaled $573.3 million, the largest contribution on record, including $53.7 million of capital expenditures and $35.3 million of Middlemount cash contributions.
Note: All comparisons are to first quarter 2017 unless otherwise noted. Most first quarter 2017 income statement measures are not comparable with the current period due to the adoption of fresh-start reporting as of April 1, 2017.
1 Adjusted EBITDA, revenues per ton, costs per ton and Adjusted EBITDA margin per ton and percent are non-GAAP financial measures. Please refer to the tables and related notes in this press release for a reconciliation of non-GAAP financial measures. Free cash flow is a non-GAAP measure defined as net cash provided by operating activities less net cash used in investing activities. A reconciliation of net cash provided by operating activities to free cash flow is included at the end of this document.
Balance Sheet and Capital Return Initiatives
Peabody continues to execute on its stated financial priorities – generate cash, maintain financial strength, invest wisely and return cash to shareholders.
Liquidity
- Liquidity at quarter end totaled $1.65 billion, including $1.42 billion in cash and cash equivalents, $187 million of available revolver capacity and $49 million of accounts receivable securitization capacity.
- During the first quarter, Peabody secured approximately $333 million in third-party surety bonds in Australia, representing all of Peabody’s current Australian surety bonding needs.
Balance Sheet
- In early April, Peabody successfully completed the repricing of its senior secured term loan to modify terms to provide additional financial and operational flexibility, extend its maturity profile and reduce cash interest expense.
- As part of the repricing, Peabody repaid approximately $46 million of its term loan, bringing the total balance to $400 million. Peabody’s total debt is now at the higher end of its previously established long-term debt target of $1.2 billion to $1.4 billion.
- The company completed multiple non-core asset sales in the first quarter. Cash proceeds from the transactions totaled $23 million in the first quarter, with approximately $28 million also expected to be received in the second quarter. In addition, the company eliminated $4 million of reclamation liabilities as well as future take-or-pay obligations through the sale of Peabody’s 50 percent interest in the coal handling and preparation plant and associated rail loading facility utilized by the Millennium Mine.
Shareholder Returns
- In the first quarter, Peabody initiated and paid a quarterly common stock cash dividend of $0.115 per share, totaling approximately $15 million.
- In addition, the company repurchased 4.4 million shares during the first quarter with another 1.3 million shares repurchased in April, bringing total repurchases under the program to 11.5 million shares, or 8 percent of shares initially outstanding. Total repurchases under the company’s initial $500 million authorized share buyback program2are approximately $400 million.
- Peabody announced today the board authorized the expansion of its share repurchase program to $1.0 billion, reflecting the company’s strong financial position and continued commitment to returning cash to shareholders.3
“Given our robust operating performance since emergence, we believe we have significant flexibility to complete our current share repurchase program and execute a substantial portion of our newly expanded buyback program under our existing bond indentures,” said Peabody Executive Vice President and Chief Financial Officer Amy Schwetz. “We believe pursuing an amendment to our bond indentures could make sense at the right price, to secure incremental flexibility and greater certainty of accelerating our shareholder return programs.”
2 Repurchases will be subject to limitations in the company’s debt documents and may be made from time to time at the company’s discretion or pursuant to Rule 10b5-1 repurchase programs. The specific timing, price and size of purchases will depend on the share price, general market and economic conditions and other considerations. No expiration date has been set for the repurchase program, and the program may be suspended or discontinued at any time.
3 Peabody will evaluate whether or not to pursue a potential amendment to its bond indentures based on ongoing dialogue with investors and J.P. Morgan, who is advising the company on the potential amendment.
Industry Conditions
Seaborne thermal and metallurgical coal pricing remained robust on solid Asian-Pacific demand, while experiencing a gradual rebasing from elevated levels in the first quarter.
Through March, seaborne thermal coal demand rose compared to the prior year, supported by increased imports in China, India and ASEAN countries. Chinese thermal coal imports increased approximately 16 million tonnes over the prior year through March as cold weather drove an approximately 10 percent increase in power consumption and impacted domestic coal production and rail transportation. Indian thermal coal imports rose approximately 21 percent year over year due to utility restocking, weak domestic production and rail bottlenecks. ASEAN imports increased over the prior year on continued economic growth and rising coal generating capacity. Overall, Australian thermal coal exports were in line with the prior year.
With respect to seaborne metallurgical coal demand, global steel production increased 4 percent through February compared to the prior year. India imports increased 21 percent through March compared to the prior year on strong steel production, while Chinese metallurgical imports declined approximately 5 million tonnes year over year despite strong domestic steel production. At the same time, Australian metallurgical exports were in line with the prior year.
Seaborne metallurgical coal prompt prices increased approximately $60 per tonne to an average of $228 per tonne in the first quarter compared to the prior year, with the index-based settlement price for premium hard coking coal set at approximately $237 per tonne, compared to the prior year settlement of $285 per tonne. The first quarter benchmark low-vol PCI price was set at $156.50, with the second quarter benchmark low-vol PCI price negotiated at $155 per tonne.
In the U.S., thermal coal demand declined 3 percent from the prior year on increased gas and wind generation as weak natural gas pricing continues to suppress coal demand. As a result, Powder River Basin coal consumption was roughly flat through March year over year. U.S. thermal exports remained robust, increasing approximately 38 percent over the prior year. U.S. coal production declined approximately 3 percent in the first quarter. Combined, these factors led to ending March inventories decreasing approximately 10 million tons from the prior year to approximately 49 days of maximum burn.
Second Quarter 2018 Expectations
Compared to the first quarter:
- Australian thermal volumes are expected to increase sequentially throughout the year and unit costs are expected to improve;
- Metallurgical costs are expected to decline as operational improvements are anticipated to mitigate the impacts of a North Goonyella longwall move bridging the second and third quarters;
- In the U.S., Peabody expects traditional lower shoulder season PRB volumes in the second quarter. In addition, the company anticipates second quarter costs to improve in the Midwest segment relative to the first quarter 2018 given improved equipment availability; and
- Peabody remains focused on its stated financial approach, including returning cash to shareholders through its share repurchase program and sustainable dividends.
Today’s earnings call is scheduled for 10 a.m. CDT, and will be accompanied by a presentation available at PeabodyEnergy.com.
Peabody (NYSE: BTU) is the leading global pure-play coal company, serving power and steel customers in more than 25 countries on six continents. The company offers significant scale, high-quality assets, and diversity in geography and products. Peabody is guided by seven core values: safety, customer focus, leadership, people, excellence, integrity and sustainability. For further information, visit PeabodyEnergy.com.